How was the process handled in the past?
Over the last number of years, emigration (the process of applying to live in another country and then physically moving to that country) is a subject that has impacted many South Africans. To give some context, according to research done in 2017 by the Pew Research Centre, more than 1% of the New Zealand population (and close to 1% of the Australian population) was estimated to consist of SA emigrants.
The process of emigrating has also been one that was often complicated, costly, and time consuming. Generally, these were not the type of processes which individuals, making the life-changing decision of emigrating, always wanted to confront. There were two components to emigrating (discussed below), which in most cases would largely overlap.
- Exchange control emigration involved notifying your authorised dealer (generally your commercial bank) that you were emigrating. This would entail the submission of the relevant MP 336(b) form via your authorised dealer to the SA Reserve Bank (SARB).
- Emigration for tax purposes entailed submitting a tax return to the SA Revenue Service (SARS) notifying it of your emigration. This, in turn, would trigger a so-called exit tax, whereby all assets, excluding immovable property, were deemed to be sold and capital gains tax (CGT) was then due.
How is the process currently being handled?
More recently, a circular issued by the SARB’s Financial Surveillance Department (FinSurv) at the end of February 2021 has changed this process substantially, and the concept of emigration has practically been done away with. The exchange control requirement to submit the MP 336(b) form (point 1 above) has completely fallen away, while the tax side of the process essentially remains and is the only process required to be undertaken (point 2).
To comply with the requirements for an individual to cease being a SA tax resident, one will now have to apply the tax residency test. This test essentially has two components to determine i) if an individual is a tax resident in SA; and ii) when an individual ceases to be such, then emigration occurs.
The first test is whether one is ordinarily resident (which clearly, if one is emigrating, then you would no longer be) and the second is the physical presence test, which simplistically dictates specific criteria based on the number of days which an individual is in SA over various periods.
Assuming a person is no longer ordinarily resident in SA, emigration then becomes a more simplified process of submitting a tax return indicating such to SARS.
The big question that remains is how does an individual get access to be able to take their assets with them to their new country of residence (for simplicity’s sake in this case we will assume everything is in cash)? The short answer is that it is now much simpler. As with any taxpayer, you are allowed your R1mn annual discretionary allowance, and you can simply apply via SARS for a tax compliance status PIN, in respect of a further R10mn.
An individual can also put an application to SARS for additional amounts in excess of the R11mn, and SARS will now apply a more stringent verification process, and a subsequent approval process from the FinSurv (SARB) to assess the risk in terms of anti-money laundering (AML) and counter-terrorist financing (CTF) requirements.
The other major change that is worth noting is the treatment of retirement fund savings. An individual is now able to access these funds only after having ceased to be a tax resident and remaining a non-tax resident for three years. This can have cash flow implications for those individuals with most of their assets in retirement savings products.
The changes are part of a broader relaxation of exchange controls and should simplify the process for those wanting to emigrate. The devil is, however, always in the detail of an individual’s specific circumstances, and professional advice should always be sought if considering this type of move.